Finance
Reserve Currency
Definition
A currency held in significant quantities by central banks and institutions worldwide as part of their foreign exchange reserves.
Explanation
The US dollar is the dominant reserve currency (~58% of global reserves), followed by the euro (~20%), yen, and pound. Reserve currency status gives the US "exorbitant privilege" — the ability to borrow cheaply and run large deficits because global demand for dollars is built into the system. China's renminbi remains a small share (~2.5%) despite China's economic size, reflecting capital controls and limited convertibility.